Forex Hedging Dual Grid Strategy - Market Neutral Forex Trading Strategy

Forex Hedging Dual Grid Strategy

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In this strategy post, we will share with you a strategy that’s suitable for almost all market conditions. We will call this strategy the Forex Hedging Dual Grid Strategy. The concept of Dual Grid strategy is derived from the grid trading system but the only major difference between the two is that on the Dual Grid strategy we place at the same price level our buy/sell grid legs.

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This means that we’re going to be both long and short at the same price level. At first look, this might not agree with what seems right or natural however as we move forward and explain in more details the Dual Grid strategy will make more sense to you. The Forex hedging Dual Grid strategy can be highly effective in a choppy and ranging market and since it’s a market neutral strategy you don’t need to predict the market direction.

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Forex Hedging Dual Grid Strategy Explained…

There are four steps to trading the grid system:

  1. Firstly, the Dual Grid system requires establishing a grid size – usually a 15-30pips grid or between 50 and 100 pips for bigger time frames – that you’re going to be using to place your buy and sell orders.
  2. Next step is to start buying and selling at the same price level and at the same time.
  3. Once price moves to the next level of your grid pattern you cash-in the positive trade and keep open the losing trade and last but not least enter another buy and sell orders.
  4. The process continues until you’re positive or at break-even at a grid level. If you have been successfully in your transactions, if you wish you can start all over again at step two.

Forex Hedging Dual Grid Strategy Formula

If you want to find out your PnL for the entire grid there is an easy way by simply computing the following formula:

Avgn+1 =( Lotsn x Avgn + Price x (Lotsn+1 – Lotsn)) / Lotsn+1

Using the above formula will make the trade management of the Hedged Dual Grid Strategy a lot easier. You’ll have to calculate the average price for both the buy side as well as for the sell side. It’s much simpler to just watch two numbers than to keep track of all the trades executed inside your grid system.

Forex Hedging Dual Grid Strategy – Trading Rules

In order to generate a dual grid system, we have to manage the two grids simultaneously. This implies managing our stops and take profits individually on both sides of the grid. The general premise behind this system is that once one side of the grid is closed out in profit at one point the market will reverse and the other side of the grid will become profitable and hopefully we manage to close the entire grid in a profit position.

The beauty of the Hedged Dual Grid System is that there are several grid configurations that you can work with and it all depends on your level of experience and how much time you have put in backtesting the best possible scenarios.

For the purpose of this article we’re going to highlight the best trading rules for the Hedged Dual Grid System, discovered after some serious backtesting:

  • Grid leg size = 25 pips
  • Take profit = 50 pips;
  • Stop loss = 40 pips;

In order to minimize any possible large losses, you can also implement a hard stop so if the grid falls below a certain amount of pips you close all the positions.

Forex Hedging Dual Grid Strategy – Trade Example

Now that we have learned and we’re already familiar with the Dual Grid Strategy it’s time to put in practice the Dual Grid System and have a look at a real example to see how the Dual Grid works. We can start the grid and execute our buy and sell orders at the current market price level. Let’s assume the EURUSD is trading at 1.0670 which is also the starting point of our grid. Our buy and sell grid will look like below…

Forex Hedging Dual Grid Strategy – Trade Example

The above chart shows an ideal scenario for our grid configuration and the best way to trade in this type of market environment is with no stop loss as it would have maximized your gains. However, we applied a conservative approach and used an SL of 40 pips as per the trading rules of the Dual Grid System highlighted above.

As you can tell from the example above at the end of the level 15 in our grid if we were to close all our positions we would have netted 200 pips in profit. The cumulative profits were 800 pips while the cumulative losses were only 600 pips.

Forex Hedging Dual Grid Strategy – Trade Example 2

Let’s have a look how the Hedged Dual Grid Strategy works if we don’t use a stop loss. We’re going to keep our grid size at 15 pips and our take profit at 25 pips for the purpose of this example.

Forex Hedging Dual Grid Strategy – Trade Example 2

In the grid above, we managed to reach the 4th level in our grid system and also managed to successfully close almost all of our trades. The total pips gained from the closed positions is +175 pips but our Sell4 trade is still open and is -65 pips in the red which cuts off the total net profit to +110 pips which is still a good amount of pips gained in less than a day.

Forex Hedging Dual Grid Strategy – Trade Example 3

If the market moves in a straight line it’s best to only execute those orders in the direction of the price swing. If the price moves straight up we only buy or if the price moves straight down we only execute the sell orders.

Forex Hedging Dual Grid Strategy – Trade Example 3

If you’re a novice trader still struggling and having a hard time figuring out in which direction the market will be trading the Hedging Dual Grid Strategy is a simple and flexible system that can be the right trading approach for you. The market spends more than 75% of the time ranging and the Hedged Dual Grid System works best in this type of environment.



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